China may be approaching a "Minsky moment" – a sudden fall in asset values bloated by credit, analysts have warned.

Borrowing in the world's most populated country has outstripped economic expansion for five quarters, raising the question of where the money has gone, Societe Generale economist Yao Wei wrote in two recent reports.

In the first quarter, for example, bank loans, shadow banking credit and corporate bonds together accelerated more than 20pc year-over-year, while gross domestic product grew less than half that much. The gap has been widening since early 2012.

Mr Yao says the answer to where the money is going is a growing "debt snowball", which doesn't contribute to economic activity. T

he result is both companies and the public sector face burgeoning interest expenses.

This fits with the theory first put forward by economist Hyman Minsky of Washington University in St Louis.

His financial instability hypothesis showed how markets create waves of credit expansion and asset inflation, followed by periods of contraction and deflation. China's policy-makers have been trying to restrict credit. Money-market rates this week reached record highs before tumbling yesterday after the central bank injected funds. (Bloomberg)